pjm market overview
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www.patriotenergygroup.com | (800)343-4410 | [email protected]
Energy Brokerage | Energy Resources
Market OverviewPJM Edition
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Why PatriotPatriot Energy Group is one of the largest energy management firms, specializing in electric &
natural gas supply procurement for businesses across the nation. We educate organizations on the array of strategic purchasing options available to them. For over ten years, we have assisted companies as their
advocate, guiding them towards the most appropriate energy solutions to meet their business goals.
Letting you focus on your businessYour business is important. Planning your energy purchasing strategically allows you to meet more of your business goals,
whatever they may be. Energy costs are a large expense to your business. It makes sense to consider how and where you spend money. Partnering with Patriot Energy Group provides you with the overall resources to manage your energy spend and to mitigate
energy risk allowing you to focus on your business.
Offerings that work for you and your organizationWe offer you solutions to support your personal preferences, whether you are comfortable with price risk, want to hedge your future energy purchases or prefer guaranteed budget stability. Our strategies offer varying degrees of risk tolerance. Nation-wide coverage with localized regional support allows you to consolidate and easily manage your energy procurement at different locations.
The Power of ChoiceAt Patriot Energy Group you will find unique offerings designed to meet the needs of different types of clients and organizations. We were founded over ten years ago to give clients guidance on their choices around how and when they purchased energy. With the many suppliers that we work with, we are able to deliver unique offerings and competitive programs to fit changing market, environment and budgetary needs.
Expertise and client-side orientation
Acting as your advocate, we partner with you to execute your energy purchasing strategy. Our energy procurement expertise takes the guesswork out of this process. We educate and enable you to make decisions that are right for your company. With Patriot Energy, you have the comfort of partnering with an industry leader with over a decade of experience in sourcing and negotiating energy programs for our clients.
Ongoing supportYou will experience a high level of client care with one point of contact, simplifying your energy procurement. We take the time to ask questions and listen to your needs in order to develop the energy strategy that best meets your business goals. We remain vigilant as we follow the constantly changing energy markets. We will reach out to help you take advantage of new energy procurement strategies when they present themselves.
Gain insight into which energy options fi t your goals and preferences
Hybrid products and hedges help you to ride out market fl uctuations
Explore clearly defi ned energy products that fi t your usage and risk profi le
Interact with accessible, knowledgeable professionals focused on your client experience
Obtain information and responses quickly. Strategies & opportunities delivered in a timely manner
Receive ongoing analysis and guidance to set future purchasing strategies
CLIENT NEEDS
Reliability Client CareTransparency Flexibility AdvocacyExpertise
California
Connecticut
Delaware
Florida
Georgia
I l l inois
Indiana
Maine
Maryland
Massachusetts
Nevada
New York
Ohio
Oregon
Pennsylvania
Rhode Island
Texas
New Hampshire
New Jersey
Washington, D.C.
Natural Gas
Electricity
©2016 Patriot Energy Group. All Rights Reserved. | 3
Supplier Relations OverviewAs a client-side broker, Patriot Energy Group maintains relationships with a variety of licensed electric and natural gas suppliers that we believe will provide value to our clients. Specifically we only work with the industry’s most reputable suppliers. Patriot has a strict vetting process in place to determine which suppliers we will work with. As your agent we can work with any supplier.
Some of the criteria Patriot uses for consideration are:
• Geographic Reach – Some suppliers are national in scope and some are more regional
• Supplier Size – Suppliers ranging from small niche boutiques to very large energy conglomerates
• Product Offerings – Suppliers offering a diverse suite of products that benefit our clients varying needs
• Demographic Consideration – The size of companies the suppliers work with ranging from small one person operations to large multi-national corporations
• Innovative Products – Some suppliers offer innovative new products in addition to those that are tried-and-true
• Risk Tolerance – Different suppliers offer different levels of credit risk tolerance, we have relationships with suppliers covering all levels
Additionally, all of the suppliers we work with are licensed and regulated by the relevant state Public Utilities Commissions.
Our Footprint
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Electricity Cost Components The “Retail Adder” consists of charges that, in part, support the reliability and long-term sustainability of the electric grid. Every electric client pays many of these charges either explicitly or as part of their supply rate, whether they choose to work with a competitive supplier, or stay on the utility’s basic service. The Retail Adder generally makes up 20% of an overall electric bill, and roughly 30% of the supply portion.
CapacityIn many markets, the “cost” of capacity is set via a reverse auction where would-be generators “bid” their resources into the market. Some clients will pay higher capacity charges on their competitive supply bill if they have a high peak demand, often referred to as a “cap tag,” measured in kW.
Line Losses (Distribution)In the same way that line loss occurs over long transmission power lines, it also occurs over distribution lines owned by the utility. This cost is calculated by “grossing up” the amount of power used by the client. For example,10,000 kWh actual usage multiplied by 1.08 = 10,800 kWh billed usage to account for an 8% “loss-factor.”
Ancillary ServicesConsist of a few various charges related to system operation, maintaining “insurance” generators, power scheduling fees, and other ISO/RTO charges.
Renewable EnergyConsists of costs of compliance with each state’s requirements to produce a specified percentage of their electricity with various renewable energy sources. To comply, suppliers may often, if they don’t produce or obtain such renewable power on their own, purchase Renewable Energy Certificates (RECs), an “environmental commodity,” from the market.
AdministrativeThe fees required to support the competitive supplier, their billing platform, client service, and the fee that the supplier collects from the client and remits to Patriot on behalf of the client.
The diagram above shows every component that makes up the total cost of electricity. The regulated delivery charges are set by your utility company; the remaining components make up the cost of supply/generation. Despite the fact that these charges may not show up as separate line items on your invoice, you pay these charges whether you are on the basic service through the utility or buying from a competitive supplier.
©2016 Patriot Energy Group. All Rights Reserved. | 5
Natural Gas Cost ComponentsThe “Basis Cost” consists of charges that cover the cost of delivering the natural gas from Henry Hub to the City Gate. Once at the city gate the delivery charges from the local utility cover the cost of getting the gas to the end user.
BasisThe cost of intrastate delivery from Henry Hub to the City Gate. Can also include a “capacity charge,” which is tied to the amount of space that a customers gas takes up on the pipeline. Higher volumes mean higher costs as space is finite.
Gas Fuel LossesNatural Gas is lost due to inefficiencies in the system (leaks) and at some compression stations where natural gas is used to power the machines. This cost is calculated by “grossing up” the amount of gas used by the customer. For example, 10,000 therms usage multiplied by 1.025 = 10,250 therms billed usage to account for an 2.5% “loss-factor.”
AdministrativeThe fees required to support the competitive supplier, their billing platform, customer service, and the fee that the supplier collects from the client and remits to Patriot on behalf of the client.
The diagram above shows every component that makes up the total cost of natural gas. The regulated delivery charges are set by your utility company; the remaining components make up the cost of supply/generation. Despite the fact that these charges may not show up as separate line items on your invoice, you pay these charges whether you are on the basic service through the utility or buying from a competitive supplier.
May 2016
Nuclear, 41%
Natural Gas, 25%
Coal, 29%
Oil, 0.4%
Other, 4.9%
Hydro, 1.56%
Solid Waste, 0.63%
Methane, 0.36%
Wood, 0.17%
Solar, 0.15%
Wind, 2.13%
Breakdow n of Other
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Fuel Mix PJM
Source: PJM
More News at: http://patriotenergygroup.com/news.php
Industry News
Energy Efficiency Lowers Costs in Recent PJM Capacity Auction
The Energy Collective | June 2, 2016
Energy effi ciency provides many benefi ts to the electric utility system. One of these benefi ts is reducing the market price for electric generation. PJM Interconnection, the operator of the largest electric grid in the United States serving approximately 61 million people, wrapped up its most recent generation capacity auction last week. This auction determines the price paid to power plants three years in the future. The clearing price in last week’s auction was far below expectations and nearly 40% below last year’s clearing price. This is in large part due to new natural gas power plants and energy effi ciency.
Approximately 1,515 MW of energy effi ciency cleared the auction, the largest amount ever. In terms of total clean energy alternative resources to clear the auction, energy effi ciency had the highest amount of capacity, substantially more than solar (335 MW) and wind (969 MW). The complete results can be found here.
The results of this capacity auction are great news for two reasons. First, the result highlights how system planners are utilizing energy effi ciency as resource able to provide sustained and predictable energy and reserves. The fact that energy effi ciency cleared a substantial amount of megawatts under new requirements called “capacity performance” underscores the confi dence of system planners in energy effi ciency to reliably meet system load.
Second, energy effi ciency reduces costs for the entire PJM footprint. If effi ciency had not participated in this auction, the clearing price would have been higher. While the economic value would have varied by resource zone (PJM is broken up into several geographical zones), many zones would have faced higher prices from other forms of generation. While the specifi c offer prices in the auction are confi dential, Exelon (the largest utility company in the country) has publically stated two of its largest nuclear plants did not clear, meaning they are not economically competitive in the PJM marketplace. Given that energy effi ciency savings are at the margin, these resources have provided substantial economic savings to millions of customers in the PJM footprint.
Capacity performance and why it’s important
The resources cleared as capacity performance included: approximately 139,000 MW or 89% of traditional generation (including solar and wind), 614 MW or 6% of demand response, and 1058 MW or 70% of energy effi ciency. Capacity performance is a new resource designation in the PJM footprint. It is a much more stringent requirement than in previous auctions. Essentially, it requires a resource to be “capable of sustained, predictable operation, and is expected to be available and capable of providing energy and reserves when needed throughout the entire delivery year.” The majority of effi ciency resources met this requirement demonstrating effi ciency can serve as a reliable system resource in the same way as nuclear, natural gas, or solar generation.
Energy effi ciency in prior PJM auctions
Energy effi ciency has been participating as a resource in the PJM capacity market since 2009. The chart below shows the total amount of energy effi ciency that cleared the last eight auctions. The delivery year is three years from the year of the auction. From delivery year 2012/2013 to 2019/2020, the level of energy effi ciency resources clearing the auction has nearly tripled increasing from 568 MW to 1515 MW. These also only include effi ciency that has not been refl ected in the peak load forecast for the year in question, meaning there are additional savings not included.
Energy effi ciency in future capacity markets
The level of energy effi ciency to clear the PJM capacity market has increased nearly every year since 2009. This week’s auction emphasizes the critical role energy effi ciency will play in the region as natural gas prices continue to reshape the national electric generation fl eet. We expect the level of effi ciency to clear this market to continue to grow in future auctions further suppressing the market prices for generating capacity in the region. This in turn will reduce system costs for customers for years to come.
Read More: http://www.theenergycollective.com/aceee/2380066/energy-effi ciency-lowers-costs-in-recent-pjm-capacity-auction-2
©2016 Patriot Energy Group. All Rights Reserved. | 7
Cost of EnergyPJM Wholesale Electric Market - Monthly Average Day Ahead LMP
($/kWh) 2012 2013 2014 2015 2016 Monthly Avg.
Jan $0.03359 $0.03613 $0.13218 $0.03884 $0.02985 $0.05412
Feb $0.03048 $0.03644 $0.07179 $0.07542 $0.02730 $0.04829
Mar $0.02896 $0.03939 $0.06717 $0.03811 $0.02393 $0.03951
Apr $0.02805 $0.03931 $0.04160 $0.03005 $0.02773 $0.03335
May $0.03012 $0.03835 $0.04088 $0.03396 $0.02339 $0.03334
Jun $0.03188 $0.03675 $0.03973 $0.02974 $0.02575 $0.03277
Jul $0.04156 $0.04649 $0.03679 $0.03173 $0.03914
Aug $0.03325 $0.03423 $0.03393 $0.02953 $0.03274
Sep $0.03188 $0.03551 $0.03332 $0.02950 $0.03255
Oct $0.03447 $0.03489 $0.03409 $0.02942 $0.03322
Nov $0.03970 $0.03546 $0.03935 $0.02665 $0.03529
Dec $0.03258 $0.03972 $0.03173 $0.02393 $0.03199
Yearly Avg. $0.03304 $0.03772 $0.05021 $0.03474 $0.02633
NYMEX Natural Gas Monthly Settlement Price($/mmBtu) 2012 2013 2014 2015 2016 Average
Jan $3.08 $3.35 $4.41 $3.19 $2.37 $3.28
Feb $2.68 $3.22 $5.56 $2.87 $2.19 $3.30
Mar $2.45 $3.43 $4.86 $2.89 $1.71 $3.07
Apr $2.19 $3.98 $4.58 $2.59 $1.90 $3.05
May $2.04 $4.15 $4.80 $2.52 $2.00 $3.10
Jun $2.43 $4.15 $4.62 $2.82 $1.96 $3.19
Jul $2.77 $3.71 $4.40 $2.77 $3.41
Aug $3.01 $3.46 $3.81 $2.89 $3.29
Sep $2.63 $3.57 $3.96 $2.64 $3.20
Oct $3.02 $3.50 $3.98 $2.56 $3.27
Nov $3.47 $3.50 $3.73 $2.03 $3.18
Dec $3.70 $3.82 $4.28 $2.21 $3.50
Yearly Avg. $2.79 $3.65 $4.42 $2.66 $2.02
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Natural Gas Front-Month Settlement
PJM Monthly Wholesale Power Average
©2016 Patriot Energy Group. All Rights Reserved. | 9
PJM Wholesale Electric Market - Historical Pricing
Independence Plan Variable StrategyThe Independence Plan allows clients to purchase their hourly electricity at prices derived from the ISO exchanges creating an opportunity for clients to avoid credit and risk premiums associated with fixed-rate strategies.
Freedom Plan Fixed StrategyThe Freedom Plan provides a fixed price for a given volume of electricity usage over a selected term and enables clients to predict their future costs.
Hancock Portfolio Plan Seasonal Peak Power HedgingThe Hancock Portfolio uses aggregation as a means to secure the best possible hedge for its client’s summer and winter peak power, thus offering protection from seasonal energy spikes.
Bunker Hill Portfolio Plan Winter Power HedgingThe Bunker Hill Portfolio Plano uses aggregation as a means to secure the best possible hedge for its client’s winter power, thus offering protection from high winter energy costs.
Aggregation
Index
Fixed
Hybrid
Freedom Plan Fixed StrategyThe Freedom Plan provides a fixed price for a given volume of natural gas usage over a selected term and enables clients to predict their future costs.
Franklin Plan Hybrid StrategySeasonal natural gas users can benefit from our Franklin Plan by hedging only their winter usage and utilizing a variable, market-based strategy in the typically lower priced summer months.
Liberty Plan Hybrid StrategyThe Liberty Plan is designed to take advantage of the powers of aggregation and seasonality, assembling a select group of buyers to participate in an aggregated hedge during seasons that typically have lower prices.
Independence Plan Variable StrategyThe Independence Plan allows clients to purchase their natural gas at prices derived from the NYMEX and Gas Daily exchanges, creating an opportunity for clients to avoid credit and risk premiums associated with fixed-rate strategies.
Patriot Plan Structured StrategyThe Patriot Plan capitalizes on the benefits of market-based, wholesale hourly index-based pricing, combined with calendar month billing, electricity is purchased in a method similar to that used by wholesale suppliers.
Philadelphia Plan Managed StrategyThe Philadelphia Plan is a blended electricity portfolio (of fixed and index products) designed to mitigate the risk associated with either a fully hedged or a fully indexed product.
Electricity Strategies Natural Gas Strategies
Product Suite
Green Energy Options Available
Which strategy works for you? As one of your largest expenses, energy is an integral part of your business. Patriot Energy Group secures energy hedges for our clients. Hedging is a method used to guard and protect against unexpected and/or seasonal rises in the price of electricity and natural gas. Clients choose a strategy (one of our hedging products) to reduce the risk of future undesirable price situations. Our approach seeks to reduce or counteract the probability of loss from commodity price fluctuations. A more highly hedged strategy is best employed when clients are uncomfortable with potential market fluctuations.
At Patriot Energy we have a wide variety of offerings that generally fit into the following categories:
When budget stability is your paramount focus, our fully hedged products will provide you with the certainty you need to allocate funds within your business.
These products are designed to mitigate some of the risks associated with both fi xed and index buying. Clients will have the ability to hedge a percentage of their energy at a fi xed price and buy the remaining portion on an hourly index (Philadelphia) or by allocating their load in fi xed price or index strategy on a seasonal basis (Franklin).
When energy markets are declining and you have the ability to be a bit more aggressive with your purchasing strategy, or if you are comfortable with swings in price, or your usage patterns are typically in off-peak seasons or times, an Index product could be a great fi t.
Combining customer usage profi les allows for more effi cient purchasing. Patriot Energy has developed products that will allow you to hedge your purchasing with similar energy consumers. By joining one of these groups, clients can take advantage of buying in bulk with an elite group of buyers.
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Electricity Strategies Natural Gas Strategies
Hedging Risk
Price Risk: The degree of price fluctuation a client can tolerate
Market Risk: The risk of the client’s retail rate exceeding the overall average Day Ahead Locational Marginal Price from the Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs)
Degree of Hedging: Hedging is a strategy used to guard and protect against unexpected and/or seasonal rises in the price of electricity and natural gas
Freedom Plan Freedom Plan
Patriot Plan
Franklin Plan
Hancock Portfolio Plan
Bunker Hill Portfolio Plan
Independence Plan
Independence Plan
Philadelphia Plan
Liberty Plan
HIGHER HIGHER
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RISKS RISKS
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MARKET MARKET
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MARKETDEGREE OFHEDGING
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DEGREE OFHEDGING
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LOWER LOWER
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RISK TOLERANCES AND HEDGING ARE CUSTOMIZED
Volumetric Risk
Volumetric risk is the risk related to the fluctuation of the amount of energy a company actually uses compared to their expected historical usage. When a client’s actual consumption falls outside of their expected historical usage the supplier may charge an additional cost as a result of the difference.
Patriot offers a variety of products to offset risk and to minimize expenses. Review the options below to help you choose a product:
©2016 Patriot Energy Group. All Rights Reserved. | 11
Ancillary Services: Small when broken down by line item, as a collective group they have a large impact
Administrative: Supports supplier day to day operations, billing platform, customer service, and broker fees
Capacity: Having a high capacity tag can in some instances negatively impact pricing
Line Loss: Charges for energy loss which occurs when electricity flows across lines
Renewables: Businesses conscious of their overall energy impact on the environment this is especially important
RMR: Facilities that are necessary in order to maintain the reliability of the power systems
LFR: Utility charges assessed based on the geographical location of a business in a utility
NITS: Based on upgrades to the PJM ISO system which has a significant impact within the utilities’ service territories
Taxes: Paid by both electric distribution companies and electric generation suppliers (not in all States)
These components may either be passed through or included in the supply rate, allowing clients to further vary the degree of risk tolerance they are comfortable with.
There are many different components that make up the cost of energy some can be fixed into the competitive supply rate or passed through. Below are some of the components and how they can affect you along with additional concepts to keep in mind.
Band: How consistent your usage is can drastically affect your price
MAC: Protects the supplier in case the client’s usage deviates
Credit Risk: The higher the credit risk, the higher the rate potentially will be of the competitive supply customer
Regulatory Risk: Changes in laws or regulations made by the government or a regulatory body can increase energy costs
Things to Consider
Cost Components Contract Provisions
Additional Risks
General Disclaimer: This information is provided as a courtesy to our cl ients and/or potential cl ients and should not be construed as an offer to sell or as a solicitation of an offer to buy securit ies based on, or contracts in or for, any energy commodity. Patriot Energy does not sel l electricity and/or natural gas, and as such, the actual terms and condit ions of competit ive supply are solely provided for by the competit ive supplier’s contract with the cl ient. Reliance on this information for decisions is done so at the sole risk of the reader and past performance is not indicative of future results. This information is provided as a general description of various electricity and/or natural gas purchasing strategies that may be decided upon by our cl ients. Both cl ients and potential cl ients should consider their individual circumstances and other sources of available information before arriving at a decision. Graphs and charts are for i l lustrative purposes only.
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www.patriotenergygroup.com
Phone: (800)343-4410
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